Minnesota loses cellulosic ethanol venture

A biofuels company that benefited from nearly $1 million in grants from Minnesota taxpayers says it's ready to build two plants to turn wood chips into ethanol -- in Michigan and Alberta.

Just nine months ago, Mascoma Corp. told Minnesota officials that it could build "one of the first commercially viable cellulosic ethanol plants in the world" in Little Falls, Minn., with a project schedule that listed construction starting this May.

But the Lebanon, N.H.-based company has quietly abandoned the Minnesota-funded project, and recently told investors that its first cellulosic ethanol plant will be in Kinross, Mich., and its second in Drayton Valley, Alberta.

In a statement e-mailed to the Star Tribune on Friday, Mascoma said the Little Falls venture was terminated in the second half of 2011. The company said the decision with its partners was "primarily as a result of financial feasibility."

Officials from Mascoma, which has patents on the cellulosic ethanol process, declined to be interviewed, citing a quiet period before an initial stock offering. Two partners in the venture -- Central MN Ethanol Co-op, owner of a corn-ethanol plant in Little Falls, and Bell Independent Power Corp., a Pittsford, N.Y., renewable energy company -- did not return calls and e-mails.

The $123 million Minnesota cellulosic ethanol plant was to be built next to the existing ethanol plant in Little Falls, 100 miles northwest of the Twin Cities. Fed by wood, it could have been a boon for the state's logging industry.

Then-Gov. Tim Pawlenty announced the $910,000 state grant in 2008. It remains the largest grant awarded by the Next Generation Energy Board, a panel of legislators and citizens formed in 2007 within the state Agriculture Department to promote new energy technology.

"The development of Minnesota's first commercial scale cellulosic ethanol plant is closer to reality because of this joint venture," said a new release the governor issued at the time.

Last week, members of the board said they were surprised at Mascoma's actions.

"It may be too late to get the money back, but we ought to use this as a learning lesson and never step into it again," said board member John Frey, a retired science and engineering dean at Minnesota State University, Mankato, who now heads two campus institutes. "There is something about the process that's missing."

The Agricultural Utilization Research Institute, a Crookston, Minn.-based nonprofit, gave another $100,000 in state money to the Little Falls project.

Christina Connelly, the state Agriculture Department biofuels manager who oversees NextGen board grants, said the Little Falls joint venture complied with the 2008 grant by submitting a final feasibility report last May.

Connelly said the companies weren't obligated to build the project. About $48,000 of unspent grant money was returned to the state treasury.

Paul Stark, a farmer near Morris, Minn., who serves on the state energy board as a representative of the Minnesota Farm Bureau, said he was surprised at the termination of the project, and added: "We really have no control over what happens after the fact."

More money in Michigan

Mascoma got involved in the project in 2010 when it acquired SunOpta Bioprocess, a cellulosic technology unit of an Ontario-based organic ingredient supplier with U.S. operations based in Minnesota.

The state's grant money kept flowing, with Mascoma as the technology partner.

At the time, Mascoma also was working on a wood-to-ethanol venture in the upper peninsula of Michigan, a project that has now received $20 million in grant money from that state. That project also was awarded an $80 million U.S. Energy Department grant. In December, Valero Energy, a Texas-based oil refiner and ethanol maker, agreed to help finance the $232 million Michigan plant, which is slated to be completed next year.

Frey, of the energy board, said Minnesota should examine what happened with the Little Falls grant and whether the research benefits projects in other states.

Mascoma, in an e-mail, said the Little Falls work was specific to that site and "we do not believe that there was any general institutional knowledge gained ... that could benefit Mascoma's Michigan or Alberta projects."

Bradley Saville, professor of chemical engineering at the University of Toronto and an adviser on the project, said much of the work in Little Falls focused on lignin, a byproduct of cellulosic ethanol that can be used as a fuel source. He said a pilot facility in Canada successfully produced ethanol from wood.

No commercial-scale cellulosic ethanol plants have been built in the United States despite government estimates that 500 million gallons a year would be flowing by now. The Michigan project, or others in Iowa and Kansas, could be the first.

The end of the Little Falls project puts Minnesota out of the running.